The cancellation affects 140,573 HMO members, who will get letters later this month warning that they will be assigned a new primary physician as of April 1, 2015, according to Blue Shield spokesman Steve Shivinsky.

In addition, letters have been sent to 4,413 PPO members who have used Sutter facilities in the past 12 months and another 139,338 PPO members living within 15 miles of a Sutter facility.

The letters warn that those using Sutter care providers can continue to do so until June 30 with some possible increase in out-of-pocket costs. After June 30, if no new contract is reached, Sutter will become an out-of-network provider and out-of-pocket costs will increase substantially.

Blue Shield is asking for a cut in reimbursement rates, and Sutter officials said on Jan. 6 that the two sides remain "very far apart" on the financial terms of the contract.

"It's significant enough that it would have a devastating impact on Sutter Health's ability to meet our patients' needs," said Bill Gleeson, a spokesman for Sutter Health.

"This is really about a very large and powerful health insurance company trying to cut back on the money it spends on actual patient care," Gleeson said.

Blue Shield, however, argues that Sutter's costs are well above those of other healthcare providers in the area and would remain so even if the company accepted the new reimbursement rates, in part due to the rapidly growing company's dominant market position in much of California.

Also at issue in the talks is a demand by Sutter for mandatory arbitration for all disputes.

While Sutter officials maintain the provision is something that was already present in previous contracts, Blue Shield says the current demand would prevent both it and self-insured customers from suing in open court for anti-competitive business practices. Sutter's business practices have previously been the subject of lawsuits and an investigation by the state attorney general's office.

"The new provision created by Sutter appears driven by their desire to avoid public scrutiny of business practices that have been frequently criticized by industry participants and observers," Shivinsky, the Blue Shield spokesman, said in a written statement.

Gleeson said Sutter was waiting for Blue Shield to make a counteroffer to Sutter's most recent proposal, and noted that the two sides are not currently in talks.

Shivinsky said Blue Shield had given its best and final offer late last week and was happy to talk but "at this time it is up to Sutter to initiate the next meeting."